Why online retailers must look past the initial fulfillment cost to obtain its true value

Fulfillment Growth and Scale
Look at fulfilment cost

Online retail is a competitive business, and while the industry continues to boom, eCommerce operations managers are working to balance tight budgets with growing customer expectations. Outsourcing can be an efficient way to reduce fulfillment costs, but retailers can often be put off by the initial figures instead of considering the overall financial benefits when compared to pricey in-house operations. So, what are the key expenses to consider?

Space

As your business grows, an increase in order volume means that you’ll be needing more stock on hand ready to be picked, packed and dispatched to your customers – and it’s got to be housed somewhere.

As eCommerce continues to thrive, many businesses are finding that heightened demand for warehousing has pushed leasing costs up considerably, while seasonal fluctuations in order volume could mean your space goes from half empty to fit-to-burst at an alarming pace.

Depending on the size of your business, you’ll also need to factor in a range of additional costs and fees, from racking and packing desks to forklifts, rubbish disposal, building maintenance and insurance. It really does add up.

One way of combating the growing in-house fulfillment costs is to outsource to a third party. This means that your stock will be housed in and dispatched from their warehouse, removing the need to find your own. You only pay for the space your product is actually occupying, and there will be plenty of flexibility in the space available to account for any peaks and troughs in order volume.

People

It goes without saying that any fulfillment operation requires manpower, and this comes at quite an expense. Not only do you need to factor in the cost of wages, but hiring, equipping and training your team will also take time and require additional financing.

Third party fulfillment providers however, will already have an expertly trained team at their fingertips, with the infrastructure available to add to this team during peak periods such as Christmas.

Technology

Many in-house fulfillment operations run on legacy systems at best, and some still use pen and paper (yes, really!). In order to meet growing customer expectations, your fulfillment software needs to be intuitive and efficient, while providing comprehensive data insight – and without a full-time team of expert developers, that’s very difficult to achieve.

Off-the-shelf warehouse management systems are getting better, but you’ll find the most cutting edge systems have been created by third party fulfillment providers. After all, it’s what they do best. What’s more, software created by those in the business will be continually upgraded and added to in order to keep ahead of the competition.

Packaging

Depending on your product, finding affordable, quality outer packaging can be tricky. You’ll of course want to strike a balance between too much protection or too little, and while getting your item to the customer in one piece is the main priority, it helps if the package looks professional too.

One of of the major advantages of using a third party for your order fulfillment is that they buy in bulk, and so will have access to better pricing from packaging manufacturers, as well as a wider range of boxes and other materials.

Postage

Fulfillment houses send out such high volumes of parcels that (as with packaging) they often have access to preferential rates, as well as dedicated account managers at major carriers. This usually results in better overall postage costs, which can be passed on to your customers and provide you with a competitive advantage.

Collection arrangements are often to a fulfillment house’s advantage, thanks to good locations (for example, our UK fulfillment center is strategically positioned next to major carrier hubs) and often multiple collections per day. This means you’ll be able to offer later cut-off times for next day delivery.

Returns

A good returns process wasn’t built in a day, and the art of making it smooth, efficient and hassle free is something fulfillment companies are increasingly looking to master. Processing returns in-house, especially in industries such as fashion where they are particularly common, can be a big strain on resources, not to mention an organisational nightmare. A poor returns process could put customers off repeat purchases.

Third party fulfillment companies that have dedicated technology for returns management can alleviate this burden. The best on the market can even provide tracking on returns, so that end customers can access status updates as their order arrives back at the warehouse and their refund or exchange processed.

Interested in reducing fulfillment costs by outsourcing but want to know more? Contact our team today to discuss your requirements.